Energy Sector

[rohitc99]

1 hour ago, bizaro86 said:

 

Right. Rig count is down and production growth is down.

 

Rig count 2023 is 57% of Rig count 2018.

Production growth 2023 is 57% of production growth 2018.

 

Seems like productivity is similar to me.

 

You're correct that there is natural depletion of the existing production base, but that's very difficult to determine. I'd suggest that it's probably a very comparable number between the two years - production is higher now but the % decline is probably slightly lower as the production base is more mature than it was in 2018 so has lower decline. 

thanks

[Spekulatius]

Bought a starter in APA, mostly because I think the value of their exploration assets in Suriname are not reflected fully  in the valuation. Suriname is adjacent to Guyana and APA has a stake in two blocks 53 and foremost 58 where the latter is operated by Total (APA owns 50%) and has shown several gushers:

https://geoexpro.com/the-suriname-guyana-basin/

 

https://investor.apacorp.com/static-files/cb0eb758-205d-406c-8af0-9f781d1a245c

 

this will take some time to play out (years) but i think at some point continued exploration progress and development will start to get reflected more in the share price. Even discounting Suriname, APA looks quite cheap based on metrics

[Ulti]

https://www.theglobeandmail.com/politics/article-canada-minimum-emissions-cap-oil-gas-sector/
I’m curious as to those on board who are invested in Canadian oil and gas see this…. I would assume that Alberta

is foot to fight this tooth and nail.

[Dalal.Holdings]

 

When I see what has happened to U.S. oil production--supposedly in an era of rising cost of capital and "decreasing capex", I'm not too excited about buying oil producers

 

These guys never learn

 

Drill baby drill!

Edited December 7, 2023 by Dalal.Holdings

[Spekulatius]

I guess it may be time for another flush:

I do not think the Saudi's will play this over again like in 2015, as it cost them dearly.

[Sweet]

The Saudis have been doing nearly all the heavy lifting to keep prices up.

 

Whats the point of keeping millions of barrels off the market just to allow the US producers to fill that gap and drive down price lower anyway.

 

The Saudis may as well produce close to their full amount, and let price settle where it will, and allow US producers to max out their production as soon as possible.

[james22]

Saudi Arabia could 'flush' the oil market with a flood of supply to regain control over prices in the face of rising US production, crude expert says

 

https://markets.businessinsider.com/news/commodities/oil-market-opec-us-production-saudi-arabia-supply-flood-2023-12

[Sweet]

51 minutes ago, james22 said:

Saudi Arabia could 'flush' the oil market with a flood of supply to regain control over prices in the face of rising US production, crude expert says

 

https://markets.businessinsider.com/news/commodities/oil-market-opec-us-production-saudi-arabia-supply-flood-2023-12

Think I agree with that.  Although I’m not sure the Saudis will have the exact same play as the last couple of times.  Their supply increase needs to be more permanent IMO.  
 

There is a wild card too, perhaps Putin calls in a favour and somehow gets the Saudis to not pump oil.  They need the oil money for their Ukraine war.

[Xerxes]

apologies for torpedoing some of the comments here but I think you folks need to be realistic in terms of Saudi vision for the 2030s, the money/budget that it will take, the dip that their foreign reserve took in the oil wars of 2014-15, and the dip that it will take for a repeat. their current budget and the new geopolitical landscape where they have literally made peace in Yemen and shook hand with Iran to better focus on their economic agenda and development. 
 

Aggressive Saudi foreign policy (be it military intervention in Yemen, blockading Qatar or weaponizing oil as in 2014-15) was the experiment of the 2010s. None of which worked out. 

I don’t think folks here can just assume Saudis will flood the market out of the blue in a vacuum of all other variables that has changed. 

 

[Sweet]

39 minutes ago, Xerxes said:

apologies for torpedoing some of the comments here but I think you folks need to be realistic in terms of Saudi vision for the 2030s, the money/budget that it will take, the dip that their foreign reserve took in the oil wars of 2014-15, and the dip that it will take for a repeat. their current budget and the new geopolitical landscape where they have literally made peace in Yemen and shook hand with Iran to better focus on their economic agenda and development. 
 

Aggressive Saudi foreign policy (be it military intervention in Yemen, blockading Qatar or weaponizing oil as in 2014-15) was the experiment of the 2010s. None of which worked out. 

I don’t think folks here can just assume Saudis will flood the market out of the blue in a vacuum of all other variables that has changed. 

 

Whats the alternative?  Let shale continue to produce in very large volumes, bringing prices lower, whilst they have millions spare?

 

If prices are heading lower anyway, because the Shale bros won’t stop pumping, what is the value to Saudis to keep so much oil off the market?  It might actually cost them more money in the long run.
 

They might be better to pump now, bring an abrupt halt to the shale production, and keep their production at that level.  Yes it would hurt in the short term, but longer term prices would normalise.

 

I think there are political decisions which confound that sure, and budget issues too.  But I don’t agree it’s off the table.

 

Edited December 8, 2023 by Sweet

[Xerxes]

1 hour ago, Sweet said:

Whats the alternative?  Let shale continue to produce in very large volumes, bringing prices lower, whilst they have millions spare?

 

If prices are heading lower anyway, because the Shale bros won’t stop pumping, what is the value to Saudis to keep so much oil off the market?  It might actually cost them more money in the long run.
 

They might be better to pump now, bring an abrupt halt to the shale production, and keep their production at that level.  Yes it would hurt in the short term, but longer term prices would normalise.

 

I think there are political decisions which confound that sure, and budget issues too.  But I don’t agree it’s off the table.

 

I would agree with you if we were in 2013-14.
 

Pre 2014 a barrel of oil in the ground was more valuable than out for the Kingdom. Post 2014 it became the reverse as the Kingdom switched gears to maximize volume.
 

The difference however is that shales bros were under prepared and under capitalize for what the Saudi was about to unleash them in 2014.
 

No more. They are far more resilient today, rebuilt their balance sheet and the shale industry has consolidated. And that last point is important. The Pioneers of the world no longer need to go toe to toe with OPEC as they are part of a larger portfolio. And a Saudi onslaught will not have the same negative impact. 
 

So the alternative is to continuation of OPEC+ dominated by the Kingdom and Kremlin, keeping supply in check focusing on price. 
 

I realize that we see things from global point of view when it comes to oil and pricing of the global benchmark. The reality is that the Saudi sell primarily to China these days. I don’t think shale volume will compete to displace those secure Saudi and Iranian (discounted) volumes going to China by undercutting.   
 

I think the only time you will see a repeat of aggressive Saudi volume maximization strategy is if there is an outlier event like the spread of cronovirus. In march 2020, the OPEC+ broke down, and the big two let is loose. 
 

Saudis are not very good in playing game of thrones and play at geopolitics, but they are superb merchants and businessmen. 

[Xerxes]

Paul Sankey though believe Saudi might just do what you said: dump the market.
 

Just saw an interview with him on Bloomberg. 
 

he is an actual oil analyst (unlike me). he knows far more than me. But I just don’t think the direction that the Kingdom is going would mean they can start a price war. 

 

[Sweet]

8 hours ago, Xerxes said:

I would agree with you if we were in 2013-14.
 

Pre 2014 a barrel of oil in the ground was more valuable than out for the Kingdom. Post 2014 it became the reverse as the Kingdom switched gears to maximize volume.
 

The difference however is that shales bros were under prepared and under capitalize for what the Saudi was about to unleash them in 2014.
 

No more. They are far more resilient today, rebuilt their balance sheet and the shale industry has consolidated. And that last point is important. The Pioneers of the world no longer need to go toe to toe with OPEC as they are part of a larger portfolio. And a Saudi onslaught will not have the same negative impact. 
 

So the alternative is to continuation of OPEC+ dominated by the Kingdom and Kremlin, keeping supply in check focusing on price. 
 

I realize that we see things from global point of view when it comes to oil and pricing of the global benchmark. The reality is that the Saudi sell primarily to China these days. I don’t think shale volume will compete to displace those secure Saudi and Iranian (discounted) volumes going to China by undercutting.   
 

I think the only time you will see a repeat of aggressive Saudi volume maximization strategy is if there is an outlier event like the spread of cronovirus. In march 2020, the OPEC+ broke down, and the big two let is loose. 
 

Saudis are not very good in playing game of thrones and play at geopolitics, but they are superb merchants and businessmen. 

This is sort of my point though.  Shale isn’t going away and the Saudis know this.  That’s why I said a ‘flush’ might not be what the Saudis do but they might opt for a permanent supply increase.  
 

If they believe like you do, and I do, that Shale is just going to keep pumping and keep prices lower for as long as they can grow production rapidly, then it doesn’t make sense for the Saudis to keep their million+ barrels off the market.

 

Example.  Let’s say the Saudis decide to cut another million barrels.  Prices go up a bit but this time next year Shale is producing nearly another million more and prices are back where they began.  Should they just keep cutting millions of barrels and allow shale to take market share?  I don’t think they will, I think they will come to the conclusion that they would prefer it was their barrels are on the market rather than US shale.  
 

Shale has disrupted OPEC’s pricing power for now, and if the Saudis cannot get price to where they want, they might as well have as much of the market as possible.

 

One side note on the above.  As US production gets lighter and more crude comes on the market, the more valuable the heavy crude is.  There is only so much light you can blend.  We could see much bigger prices differences in grades over time - almost like separate markets.

 

Edited December 8, 2023 by Sweet

[Spekulatius]

I think the Saudi‘s set their price range too high encouraging other players like shale to come back. Shale was barely profitable at $80-$100 back in 2015 from a cash flow perspective and now the operators easily handle $70 and even $60.

 

We also have China and Europe decarbonizing. The Chinese partly do this with their push for EV and alternative energy sources but also because their decade long construction boom has ended and construction uses plenty of energy.

 

Then we have new oil exploration in South America where production is growing quickly. This all adds to a better balanced oil market with more diverse sources. The Saudis simply lost their market power and the more they cut the less they will matter the future.

[Xerxes]

@Sweet @Spekulatius

 

 

[Sweet]

14 minutes ago, Xerxes said:

@Sweet @Spekulatius

 

 

I agree with most of what he says except flooding the market.  I don’t think they just turn on all their oil supply.  Maybe step wise to a permanently higher production going forward.  I’m sure the Saudis don’t want 30-40 oil again.

[Dalal.Holdings]

U.S. producers are doing a good amount of flooding on their own...

[fareastwarriors]

Endeavor Energy Partners is exploring a sale that could value the largest privately-held oil and gas producer in the Permian basin of the United States at between $25 billion and $30 billion, according to people familiar with the matter.

 

https://ca.finance.yahoo.com/news/exclusive-endeavor-energy-explores-sale-185530390.html

 

Endeavor produced 331,000 barrels of oil equivalent in the second quarter of 2023, up 25% from the corresponding period in 2022, according to Fitch Ratings. The credit ratings agency projected last month that Endeavor will generate about $1 billion of free cash flow in 2024.

Edited December 8, 2023 by fareastwarriors

[SharperDingaan]

Keep in mind they are private; we have no idea what their depletion rate is. Assuming their production is primarily shale, they will be depleting at 20-25%/yr. Per the article if 331K was Q2/2023 production, it was 264.8K in Q2/2022. If there is no new drilling, and depletion is 20%/yr; it's back to 264.8K in Q2/2024, plus a good chunk of existing inventory burnt. There is a reason why they are selling.

The majors now largely control the US shale basins; and the same as with OPEC+, they will be managed to maximise lifetime value-add. The are also partners in most OPEC+ basins, and the US itself is the 'security' partner in the ME. They will agree a range that everyone can live with, and the more that shale is manufactured the more profitable it will be.

Over the long-term, shale fields are really gas basins producing light oil as by-product; and its value is maximised when it can be blended into heavy oil going into refining. The majors are just doing the Standard Oil thing; locking up the vast bulk of domestic gas while they can, then controlling the price as the US is forced to use it - as the transition fuel from gasoline to electricity.

 

No different to the diamond and gold fields of yesteryear.

 

SD

Edited December 8, 2023 by SharperDingaan

[Dalal.Holdings]

The majors are buying US shale basins in large recently announced transactions that will take some time to clear regulatory hurdles and close. From then on, it too will take time for the wells to deplete where it might be supportive to oil prices. In the meantime there are still independents out there including private ones. There is more and more oil coming out of Guyana, there is talk of reducing sanctions on Venezuela, etc. Additionally USA gasoline demand has yet to breach 2018 peak due to EVs/vehicle fuel efficiency.

 

In the meantime, you have major economies cooling off from a bout of inflation heading into a possible downturn. OPEC+ has taken production offline temporarily and yet prices continue to fall. And yet many in OPEC+ need the revenue (to fund wars, etc) so it is only a matter of time until they too boost production (indeed there are already disagreement within OPEC+ about cutting and the details of the cuts have not been revealed).

 

Quote

OPEC’s meeting, typically held in Vienna, was conducted virtually after being delayed last week due to disagreements over the cuts. The meeting involved heated debate over the size of the proposed cuts and how they would be distributed among members, delegates said.

The exact details of the compromise, if any, weren’t clear.

 

I don't think the majors nor OPEC+ have enough control to maintain prices. I think shale drillers will have to learn the hard way (again). I'm too skeptical of high oil prices to buy oil stocks here. Shale oil has successfully put a ceiling on oil prices now for over a decade.

[Sweet]

Might be in the video posted above, but there are something like 3,000 upstream producers in the US.  There is only so much consolidation that can happen.

 

I wouldn’t be a buyer hear, feel we are back to normal operations after the covid / Ukraine supply shock.

[FCharlie]

On 12/6/2023 at 9:47 AM, Spekulatius said:

Bought a starter in APA, mostly because I think the value of their exploration assets in Suriname are not reflected fully  in the valuation. Suriname is adjacent to Guyana and APA has a stake in two blocks 53 and foremost 58 where the latter is operated by Total (APA owns 50%) and has shown several gushers:

https://geoexpro.com/the-suriname-guyana-basin/

 

https://investor.apacorp.com/static-files/cb0eb758-205d-406c-8af0-9f781d1a245c

 

this will take some time to play out (years) but i think at some point continued exploration progress and development will start to get reflected more in the share price. Even discounting Suriname, APA looks quite cheap based on metrics

Welcome to the APA club. I've been riding this one up and down and ultimately nowhere for a couple of years now with nothing to show for it but dividends and a few puts that I sold that expired.  I too think it's seriously undervalued, yes for Suriname, but also for the LNG contract with Cheniere that at one point would have been worth $1.5 billion annually on its own but today is more like $0.5 billion. Every time APA gets up in the mid $40s I think it's going to break out yet every time it has just round tripped back down to these levels. I think you will do well with this entry point. One thing that has been frustrating to me is that APA has a habit of pausing their buyback quite often for news that hasn't been disclosed, hopefully they can buy back a solid amount of shares going forward because the valuation is really low. 

[UK]

On 12/7/2023 at 11:11 PM, Dalal.Holdings said:

 

When I see what has happened to U.S. oil production--supposedly in an era of rising cost of capital and "decreasing capex", I'm not too excited about buying oil producers

 

These guys never learn

 

Drill baby drill!

 

From this article: https://www.economist.com/finance-and-economics/2023/11/29/an-unruly-opec-is-causing-problems-for-russia-and-saudi-arabia

 

The last time the group faced a similar state of affairs—decelerating demand, new entrants and co-ordination problems—in 2014, officials chose a different strategy, as Alberto Behar of the imf and Robert Ritz of Cambridge University have written. Back then members increased supply in an attempt to drive down the oil price. The aim, as announced at opec’s meeting in November nine years ago, was to grab market share (and in so doing drive out American competitors). This had the advantage of stimulating demand and not requiring discipline among opec’s members: they were able to produce oil to their heart’s content.

Such an approach is no longer feasible. opec’s market-share strategy last time round helped discipline America’s oil producers, pushing them to become more efficient and therefore more resistant to future squeezes. JPMorgan Chase, a bank, reckons that the cost of getting oil out of the American ground has declined by more than one-third since 2014. The country’s oilmen have found methods to fracture rocks that produce more fissures, easing the extraction of oil, and now drill deeper wells that have longer lifespans.

Saudi Arabia would very much like opec+’s current strategy to succeed. Its free-spending government has pushed up the price at which the country’s budget balances to $85 a barrel, according to the imf—and that number is higher when outlays from its sovereign wealth fund are included. Russia, meanwhile, needs oil revenues to fund its war in Ukraine. Delaying the meeting to November 30th did not help either country. Doing so wiped another 5% from the price of Brent crude.

[gfp]

26 minutes ago, UK said:

JPMorgan Chase, a bank,

 

Phew, I was confused for a sec.  Maybe someday we won't have to write "X, formerly known as twitter" anymore

[Spekulatius]

@FCharlie thanks for the background on APA. My view is that Suriname is like a free option that is priced at zero right now. The block 58 of which APA owns 50% but which is operated by Total (they paid for exploration ) has now 700m BOE (350M to APA) but there is likely way more. They also found s9ms oil at the southeast tip of 53 block (fully owned) after having 2 dry wells a few years ago. My guess is they drilled the southwest tip of 53 (Baja) to keep the exploration license alive.

 

In any case 350m BOE is nothing to sneeze at but there is likely far more. Exxons Stabroek hs billions of BOE and Block 58 is an extension off the same trend. I think Block 58 could be worth the entire APA market cap if things go the right way.

 

Edited December 9, 2023 by Spekulatius